03/11/2023 (The Edge Malaysia), Nusa Dua - Global palm oil output is likely to drop next year due to the impact of the El Niño weather pattern, while demand from the edible oil and energy sectors is set to grow, supporting prices, leading industry analysts said on Friday.

Hot and dry weather is expected to continue into early 2024, worsening a steady downward trend in yields of palm oil from top producers Indonesia and Malaysia in recent years.

Global output of palm oil, which makes up a big chunk of the edible oil market, is expected to grow by 200,000 to 300,000 tonnes in 2023/2024, the lowest rate in four years, said Thomas Mielke, the head of Hamburg-based analyst firm Oil World.

That comes as global edible oil demand is seen growing by 5.6 million metric tons in the same season, he told participants at a conference in Bali.

The tight supply means palm oil prices should rise by at least US$100 (RM473) per ton in the next four to six months, Mielke said.

Benchmark palm oil futures FCPOc3 on Bursa Malaysia are expected to trade between RM3,700 and RM4,500 per ton between now and June, Dorab Mistry, a director of Indian consumer goods company Godrej International, said at the conference.

The contract was trading at around RM3,790 on Friday.

Palm oil output from the world's top producer Indonesia is seen dropping at least a million tons next year, while Malaysian output is seen unchanged, Mistry said.

'Biodiesel-driven'

Demand centres like India currently have high edible oil stocks, which led to a plunge in October imports, but analysts in Bali said going forward, demand would be driven by the energy sector seeking palm oil for renewable fuel.

"The one major factor going to impact price-making in 2024 is, I call it the Big B, biofuel," Mistry said.

Indonesia, the world's biggest palm oil producer, is expected to see its domestic palm oil consumption for biodiesel exceed consumption for food for the first time in 2023, the Indonesian Palm Oil Association (Gapki) said.

"Again, in the next year, consumption for biodiesel will exceed food consumption," Joko Supriyono, a senior official of the association, said.

Indonesia this year increased the mandatory mix of palm oil-based biodiesel in diesel to 35%, known as B35, from 30% previously.

Gapki expects Indonesia's crude palm oil and kernel oil output to grow by around 5% next year, but exports to fall by 4%, due to higher domestic consumption.

Meanwhile, Mielke warned that Indonesia's declining trend of palm oil yields was "alarming", and had so far not been reversed.

"Replanting is running behind schedule, [and the] age structure is deteriorating, which is a big challenge," he said, adding that planters face challenges finding new land while meeting sustainability standards.

Indonesia launched a subsidised replanting programme for small farms in 2016, and aimed to replant around 2.5 million hectares, but progress has been slow.

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